Did Riverbed Deserve a Thorough Whipping?

Looking at a stock chart today, you'd think Riverbed Technology (Nasdaq: RVBD) had filed for bankruptcy or at the very least completely missed earnings estimates. Few events are capable of giving a 23% overnight haircut to a stock.

Neither nightmare scenario has happened, though. Instead, the network efficiency specialist reported $0.21 of adjusted earnings per share -- in line with analyst targets -- on sales of $170 million, about $2.5 million short of estimates. That's a 1.5% revenue miss for those keeping score at home, or 35% year-over-year growth that also produced 81% higher earnings. That's not normally grounds for 10 lashes in a public square.

Then again, Riverbed shares had gained a heart-stopping 177% in the 12 months prior to this report and are trading at triple-digit P/E ratios. Simply put, the company had to absolutely crush estimates this quarter in order to deserve the very rich valuation investors have bestowed upon it, and that just didn't happen.

The lack of impressive numbers from this highflier also dragged down sector rivals: F5 Networks (Nasdaq: FFIV) dropped as much as 7% on the eve of its own quarterly report (and sports a trailing P/E ratio of 46), and Acme Packet (Nasdaq: APKT) -- trading for 93 times trailing earnings today -- took an 8% hit. Even oblique competitors and sector compatriots such as Finisar (Nasdaq: FNSR) and JDS Uniphase (Nasdaq: JDSU) are lagging the market significantly today despite a lack of company-specific news.

Wall Street analysts tend to tag this drop as a buy-in opportunity on Riverbed. All-Star CAPS analyst FBR Capital Markets, for example, attributes the slight miss to "macro headwinds in the EMEA region" and expects nothing worse than a few deals slipping into the next quarter. I'd agree, particularly since a stumbling, bumbling Cisco Systems (Nasdaq: CSCO) is leaving plenty of room for up-and-comers like Riverbed to steal pieces of its traditional business strongholds.

Comments from our Foolish Readers

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Was someone within the Fool saying that it was time to pull out? I understand the stock may be for the long term, but is there something I need to keep my eye on for "sells" on previously recommended stocks? Thanks.

@RealSeven, well yes... as a subscriber to the relevant newsletter you'd get an email the minute we recommend selling stuff. Otherwise, it's simply up to you to keep an eye on our disclosure statements because here in the free part of the Fool we don't exactly tell you about new recs or sells. If you think about it, doing so would undermine the value of our paid services, no?

Riverbed happens to be a Rule Breaker. If you want to know how that team feels about this stock at the moment, feel free to take a free 30-day trial and see for yourself. Posting questions on the RB boards is nearly guaranteed to get you a direct team-member response.